When it comes to crunch time, can we be like JAL CEO? Only time will tell whether we can rise to the occassion.
http://youtu.be/AqFxK3GMEkA
Friday, January 25, 2013
Thursday, January 24, 2013
The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money
First of all, a happy belated new year to everyone. A new year will give us renewed hope and ethusiasm as we strive to further improve ourself and to further enjoy our lives. I picked up this book by Carl Richards in a book fair and it was a bargain as the book only costs RM10. The book is about how we can improve our behaviour with respect to money as the title of the book suggests. The book is easy to understand and is quite readable. It strikes me as I am also a victim of my own irrational behaviour with money and as such, I find the book a timely reminder to not follow the herd with respect to investing and how I manage my money. I guess the sketch shown in the book cover describes most of us.
As usual, I would like to share excerpts of the book which I find useful (Words in blue are my own opinions):
1) But in the end, financial decisions aren't about getting rich. They're about getting what you want - getting happy. And if there is a secret to getting happy, it's this: be true to yourself. (Do you know what you REALLY want in life to be happy? Are you following others definition of happiness?)
2) The more expensive stocks (or houses) are, the more risky they are - yet that's when we tend to find them most attractive. (We are all worried that we might miss the train - if we don't buy now, we would not be able to afford it.)
3) ....... as the historian and philosopher George Santayana said (more or less), those who don't remember the past just get hammered again and again.
4) The next time you're about to make an investment decision because you're sure you're right, take the time to have what I call the OC (Overconfidence Conversation). It's been a truly powerful tool to help people in their decisions. Find a friend, spouse, partner, or anyone you trust, and walk them through your answers to the following questions:
- If I make this change and I am right, what impact will it have on my life?
- What impact will it have if I'm wrong?
- Have I been wrong before?
5) Before you invest your hard-earned money, ask yourself: Are you buying a particular investment because you think it's a good investment? Or are you relying on a Greater Fool to come along? If so, doesn't that make you - no offense - a bit foolish yourself?
6) It turns out that fees are the only factor that reliably predicts a fund's performance. The higher the expense ratio - the cost of owning the fund - the worse the performance for shareholders. This is a case where you actually get what you don't pay for.
7) Trying to figure out which fund will lead the pack during the next quarter or next year or next decade is a fool's game. Focus instead on finding a low-cost investment that you can stick with over the long haul.
8) (On a friend who wrote stock-picking stories): He eventually quit writing stock-picking stories. "It's a little like writing about horse racing," he says. "It's really fun, and you learn a lot about how companies operate and how people try to value stocks. Sometimes you can help weed out the worst stocks, and once in a while you come across something that works out and you think it's because you're smart. But in the end most of it is just entertainment. You know that, and you hope no one takes it too seriously. But you know some people do."
9) This reminds me of another problem confronting every investor. We have a tendency to assume that what we do know is more important than what we don't know.
10) My point was that decisions should be based on principles, not on our feelings about what's going to happen.
11) If people make enough guesses, they are bound to get at least a few of them right. Even a broken clock is right twice a day. So don't take it too seriously when someone calls a market turn correctly. Most likely, it's luck.
12) (On life planning): First, imagine you are financially secure. How would you live your life? What would you change? Next, imagine a doctor tells you that you have only five to ten years to live - but you won't feel sick. What will you do in the time remaining? Finally, this time the doctor says you have twenty-four hours. What feelings arise? What did you miss?
13) I don't know what constitutes a bad or good time to invest. The point is that it's always a good time to stop the cycle of selling low and buying high.
14) Set a course, realize that you'll certainly be wrong, and plan on making course corrections often. Remember: the ongoing process of planning - not the plan - will keep you headed toward your goals and out of the behavior gap.
15) ..... Jim Rogers: "Any economy which saves and invests and works hard always wins out in the future over countries which consume, borrow, and spend."
16) While making wise decisions about how you invest your money is important, it doesn't have nearly the impact of working hard and saving more - let alone starting a business, going back to school, or reinventing yourself in any number of ways.
17) Investment decisions should be made based on what we know, not how we feel.
18) Slow and steady capital is far more concerned with avoiding large losses than with chasing the next great investment. Being slow and steady means that you're willing to exchange the opportunity of making a killing for the assurance of never getting killed.
19) Moral: if you decide to be slow and steady, remember to take with a huge grain of salt all those stories of people getting rich quick. Slow and steady capital is short-term boring. But it's long-term exciting.
20) The goal isn't to make the "perfect" decision about money every time, but to do the best we can and move forward. Most of the time, that's enough.
In summary, a good book but I guess it won't make it into the best sellers list. Don't get me wrong, it has got nothing to do with the content but the message. People like to hear advise on how to get rich quick and easy with the least of hard work while this book highlights the importance of hard work and slow and steady investing. Not exciting but in my own humble opinion, it is the truth and the earlier that we accept it, the better our lives would be.
As usual, I would like to share excerpts of the book which I find useful (Words in blue are my own opinions):
1) But in the end, financial decisions aren't about getting rich. They're about getting what you want - getting happy. And if there is a secret to getting happy, it's this: be true to yourself. (Do you know what you REALLY want in life to be happy? Are you following others definition of happiness?)
2) The more expensive stocks (or houses) are, the more risky they are - yet that's when we tend to find them most attractive. (We are all worried that we might miss the train - if we don't buy now, we would not be able to afford it.)
3) ....... as the historian and philosopher George Santayana said (more or less), those who don't remember the past just get hammered again and again.
4) The next time you're about to make an investment decision because you're sure you're right, take the time to have what I call the OC (Overconfidence Conversation). It's been a truly powerful tool to help people in their decisions. Find a friend, spouse, partner, or anyone you trust, and walk them through your answers to the following questions:
- If I make this change and I am right, what impact will it have on my life?
- What impact will it have if I'm wrong?
- Have I been wrong before?
5) Before you invest your hard-earned money, ask yourself: Are you buying a particular investment because you think it's a good investment? Or are you relying on a Greater Fool to come along? If so, doesn't that make you - no offense - a bit foolish yourself?
6) It turns out that fees are the only factor that reliably predicts a fund's performance. The higher the expense ratio - the cost of owning the fund - the worse the performance for shareholders. This is a case where you actually get what you don't pay for.
7) Trying to figure out which fund will lead the pack during the next quarter or next year or next decade is a fool's game. Focus instead on finding a low-cost investment that you can stick with over the long haul.
8) (On a friend who wrote stock-picking stories): He eventually quit writing stock-picking stories. "It's a little like writing about horse racing," he says. "It's really fun, and you learn a lot about how companies operate and how people try to value stocks. Sometimes you can help weed out the worst stocks, and once in a while you come across something that works out and you think it's because you're smart. But in the end most of it is just entertainment. You know that, and you hope no one takes it too seriously. But you know some people do."
9) This reminds me of another problem confronting every investor. We have a tendency to assume that what we do know is more important than what we don't know.
10) My point was that decisions should be based on principles, not on our feelings about what's going to happen.
11) If people make enough guesses, they are bound to get at least a few of them right. Even a broken clock is right twice a day. So don't take it too seriously when someone calls a market turn correctly. Most likely, it's luck.
12) (On life planning): First, imagine you are financially secure. How would you live your life? What would you change? Next, imagine a doctor tells you that you have only five to ten years to live - but you won't feel sick. What will you do in the time remaining? Finally, this time the doctor says you have twenty-four hours. What feelings arise? What did you miss?
13) I don't know what constitutes a bad or good time to invest. The point is that it's always a good time to stop the cycle of selling low and buying high.
14) Set a course, realize that you'll certainly be wrong, and plan on making course corrections often. Remember: the ongoing process of planning - not the plan - will keep you headed toward your goals and out of the behavior gap.
15) ..... Jim Rogers: "Any economy which saves and invests and works hard always wins out in the future over countries which consume, borrow, and spend."
16) While making wise decisions about how you invest your money is important, it doesn't have nearly the impact of working hard and saving more - let alone starting a business, going back to school, or reinventing yourself in any number of ways.
17) Investment decisions should be made based on what we know, not how we feel.
18) Slow and steady capital is far more concerned with avoiding large losses than with chasing the next great investment. Being slow and steady means that you're willing to exchange the opportunity of making a killing for the assurance of never getting killed.
19) Moral: if you decide to be slow and steady, remember to take with a huge grain of salt all those stories of people getting rich quick. Slow and steady capital is short-term boring. But it's long-term exciting.
20) The goal isn't to make the "perfect" decision about money every time, but to do the best we can and move forward. Most of the time, that's enough.
In summary, a good book but I guess it won't make it into the best sellers list. Don't get me wrong, it has got nothing to do with the content but the message. People like to hear advise on how to get rich quick and easy with the least of hard work while this book highlights the importance of hard work and slow and steady investing. Not exciting but in my own humble opinion, it is the truth and the earlier that we accept it, the better our lives would be.
Friday, November 9, 2012
The 80/20 Principle: The Secret of Achieving More With Less
Every now and then, you will come across a book that gives you the "WOW" feeling after you have read it. I have that feeling after reading "The Black Swan", "Fooled by Randomness", "Who Says Elephant Can't Dance", etc. Well, I would rank this book by Richard Koch to be among the must read books on business and management. The term 80/20 principle or Pareto Law is so commonly used in daily business and management situations and the realisation of this principle and putting it into practice is what separates effective managers and leaders from those struggling to make the leap to the next step. The relevance of the principles highlighted in the book is more pronounced in the new digital age given that everything is moving at breakneck speed and things are supposed to be completed "yesterday". It also seems to appear that the world is moving towards the ratio of 90/10 or even 95/5 from 80/20 but regardless of the actual ratio, it serves to remind us how the world works and things are not proportionate and we should wise up and focus our limited energy and resources on things that matters.
As usual, the following are some of the exerpts from the book which I find useful and I hope you will find it useful too (words in BLUE are my own opinions):
1) ...... what happens first, even something ostensibly trivial, can have a disproportionate effect.
2) A small lead early on can turn into a larger lead or a dominant position later on,........
3) Improving on nature, refusing to accept the status quo, is the route of all progress: evolutionary, scientific, social and personal. George Bernard Shaw put it well: 'The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.' (I have earlier posted a section from the book by Alan Axelrod (Gandhi, CEO) titled "Get Ready to be a Lonely Leader" and the above statement reminds us that the road to greatness can sometimes be lonely)
4) Long-term clients tend not to be price sensitive. (Richard Koch reminds us it is more worthwhile to focus on existing or long-term clients)
5) Choose our careers and employers with extraordinary care, and if possible employ others rather than being employed ourselves.
6) Only do the thing we are best at doing and enjoy most.
7) The 80/20 Principle applied to business has one key theme - to generate the most money with the least expenditure of assets and effort.
8) A product has only to be 10 percent better value than that of a competing product to generate a sales difference of 50 percent and a profit difference of 100 per cent. (This is true in almost every aspects of life from business to sports. Teams that qualified for Champions League may be 10% better than teams that don't but in terms of revenue, teams that qualified stand to reap extra revenue of up to 90% more (90/10 ratio) and that is why it can make or break a team depending on qualifications to the lucrative Champions League. Note: The ratio is only an example which I am making up from gut feeling and not based on actual numbers).
9) If you can identify where your firm is getting back more than it is putting in, you can up the stakes and make a killing. Similarly, if you can work out where your firm is getting back much less than it is investing, you can cut your losses.
10) Outsourcing is a terrific way to cut complexity and costs. The best approach is to decide which is the part of the value-adding chain (R&D-manufacturing-distribution-selling-marketing-servicing) where your company has the greatest comparative advantage - and then ruthlessly outsource everything else. (This statement is easy to understand. We all have limited time and resources and as such, it is best to focus in the area where we can do our best. In my opinion, there is an optimum size for a given company to balance between being overly complex which may results in loss of focus and inefficiency but at the same time, an optimum size to spread fixed cost, e.g. overhead costs. The same principle also applies to each individual. We should focus on the part which we can value-add and delegates the rest.)
11) All organizations, especially large and complex ones, are inherently inefficient and wasteful. They do not focus on what they should be doing. They should be adding value to their customers and potential customers. Any activity that does not fulfil this goal is unproductive.
12) Note that there are always apparently good reasons trotted out as to why you need the unprofitable 80 per cent of products, in this case the fear of 'losing stature' by having a smaller product line. Excuses like this rest on the strange view that shoppers like to see a lot of product they have no intention of buying which distracts attention from the product they like to buy. Whenever this has been put to the test, the answer in 99 per cent of cases is that delisting marginal products boosts profits while not harming customer perceptions one jot.
13) ..... do not start your project until you have stripped it down to one simple aim. (Focus, focus, focus).
14) Faced with an impossible time scale, [project members] will identify and implement the 20 percent of the requirement that delivers 80 percent of the benefit. Again, it is the inclusion of the 'nice to have' features that turn potentially sound projects into looming catastrophes.
15) In the planning phase, write down all the critical issues that you are trying to resolve. (If there are more than seven of these, bump off the least important). Construct hypotheses on what the answers are, even if these are pure guesswork (but take your best guesses). Work out what information needs to be gathered or processes need to be completed to resolve whether you are right or not with your guesses. Decide who is to do what and when. Replan after short intervals, based on your new knowledge and any divergences from your previous guesses.
16) Impatient people don't make good negotiators.
17) One of the most important decisions someone can make in life is their choice of allies.
18) Productivity on most projects could be doubled simply by halving the amount of time for their completion.
19) Hard work leads to low returns. Insight and doing what we ourselves want lead to high returns.
20) ..... make everyone repeat back to him what they were going to do.
21) Once in your profession, if making money is really important to you and if you are any good at what you do, you should aim to become self-employed as soon as possible and, after that, to start to employ others.
22) Spend your time and emotional energy reinforcing and deepening the relationships that are most important.
23) You alone cannot make yourself successful. Only others can do that for you. What you can do is to select the best relationships and alliances for your purposes.
24) Spend more time with the contacts you enjoy, particularly if they can also be useful to you.
25) 10 golden rules for career success:
i) Specialize in a very small niche; develop a core skill.
ii) Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader
iii) Realize that knowledge is power
iv) Identify your market and your core customers and serve them best
v) Identify where 20 percent of effort gives 80 percent of returns
vi) Learn from the best
vii) Become self-employed early in your career
viii) Employ as many net value creators as possible
ix) Use outside contractors for everything but your core skill
x) Exploit capital leverage
26) Increasingly, the most important class distinction in advanced societies is not ownership of land or even of wealth, but ownership of information.
27) Whether you are employed, self-employed, a small or large employer or even the head of state, you have core customers on whom your continued success depends.
In summary, this is a good book as it opened up my mind that I should focus my limited time and energy on the important 20% that will give me 80% of the results. This is important as we move up the management chain as time would be a major constraint and we need to focus our energy and resources on value-added works and not bogged down by "routine" works. It is important for any manager/leader to be able to make this leap or else, they will be held back in their progress and to me, this book certainly helps.
1) ...... what happens first, even something ostensibly trivial, can have a disproportionate effect.
2) A small lead early on can turn into a larger lead or a dominant position later on,........
3) Improving on nature, refusing to accept the status quo, is the route of all progress: evolutionary, scientific, social and personal. George Bernard Shaw put it well: 'The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.' (I have earlier posted a section from the book by Alan Axelrod (Gandhi, CEO) titled "Get Ready to be a Lonely Leader" and the above statement reminds us that the road to greatness can sometimes be lonely)
4) Long-term clients tend not to be price sensitive. (Richard Koch reminds us it is more worthwhile to focus on existing or long-term clients)
5) Choose our careers and employers with extraordinary care, and if possible employ others rather than being employed ourselves.
6) Only do the thing we are best at doing and enjoy most.
7) The 80/20 Principle applied to business has one key theme - to generate the most money with the least expenditure of assets and effort.
8) A product has only to be 10 percent better value than that of a competing product to generate a sales difference of 50 percent and a profit difference of 100 per cent. (This is true in almost every aspects of life from business to sports. Teams that qualified for Champions League may be 10% better than teams that don't but in terms of revenue, teams that qualified stand to reap extra revenue of up to 90% more (90/10 ratio) and that is why it can make or break a team depending on qualifications to the lucrative Champions League. Note: The ratio is only an example which I am making up from gut feeling and not based on actual numbers).
9) If you can identify where your firm is getting back more than it is putting in, you can up the stakes and make a killing. Similarly, if you can work out where your firm is getting back much less than it is investing, you can cut your losses.
10) Outsourcing is a terrific way to cut complexity and costs. The best approach is to decide which is the part of the value-adding chain (R&D-manufacturing-distribution-selling-marketing-servicing) where your company has the greatest comparative advantage - and then ruthlessly outsource everything else. (This statement is easy to understand. We all have limited time and resources and as such, it is best to focus in the area where we can do our best. In my opinion, there is an optimum size for a given company to balance between being overly complex which may results in loss of focus and inefficiency but at the same time, an optimum size to spread fixed cost, e.g. overhead costs. The same principle also applies to each individual. We should focus on the part which we can value-add and delegates the rest.)
11) All organizations, especially large and complex ones, are inherently inefficient and wasteful. They do not focus on what they should be doing. They should be adding value to their customers and potential customers. Any activity that does not fulfil this goal is unproductive.
12) Note that there are always apparently good reasons trotted out as to why you need the unprofitable 80 per cent of products, in this case the fear of 'losing stature' by having a smaller product line. Excuses like this rest on the strange view that shoppers like to see a lot of product they have no intention of buying which distracts attention from the product they like to buy. Whenever this has been put to the test, the answer in 99 per cent of cases is that delisting marginal products boosts profits while not harming customer perceptions one jot.
13) ..... do not start your project until you have stripped it down to one simple aim. (Focus, focus, focus).
14) Faced with an impossible time scale, [project members] will identify and implement the 20 percent of the requirement that delivers 80 percent of the benefit. Again, it is the inclusion of the 'nice to have' features that turn potentially sound projects into looming catastrophes.
15) In the planning phase, write down all the critical issues that you are trying to resolve. (If there are more than seven of these, bump off the least important). Construct hypotheses on what the answers are, even if these are pure guesswork (but take your best guesses). Work out what information needs to be gathered or processes need to be completed to resolve whether you are right or not with your guesses. Decide who is to do what and when. Replan after short intervals, based on your new knowledge and any divergences from your previous guesses.
16) Impatient people don't make good negotiators.
17) One of the most important decisions someone can make in life is their choice of allies.
18) Productivity on most projects could be doubled simply by halving the amount of time for their completion.
19) Hard work leads to low returns. Insight and doing what we ourselves want lead to high returns.
20) ..... make everyone repeat back to him what they were going to do.
21) Once in your profession, if making money is really important to you and if you are any good at what you do, you should aim to become self-employed as soon as possible and, after that, to start to employ others.
22) Spend your time and emotional energy reinforcing and deepening the relationships that are most important.
23) You alone cannot make yourself successful. Only others can do that for you. What you can do is to select the best relationships and alliances for your purposes.
24) Spend more time with the contacts you enjoy, particularly if they can also be useful to you.
25) 10 golden rules for career success:
i) Specialize in a very small niche; develop a core skill.
ii) Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader
iii) Realize that knowledge is power
iv) Identify your market and your core customers and serve them best
v) Identify where 20 percent of effort gives 80 percent of returns
vi) Learn from the best
vii) Become self-employed early in your career
viii) Employ as many net value creators as possible
ix) Use outside contractors for everything but your core skill
x) Exploit capital leverage
26) Increasingly, the most important class distinction in advanced societies is not ownership of land or even of wealth, but ownership of information.
27) Whether you are employed, self-employed, a small or large employer or even the head of state, you have core customers on whom your continued success depends.
In summary, this is a good book as it opened up my mind that I should focus my limited time and energy on the important 20% that will give me 80% of the results. This is important as we move up the management chain as time would be a major constraint and we need to focus our energy and resources on value-added works and not bogged down by "routine" works. It is important for any manager/leader to be able to make this leap or else, they will be held back in their progress and to me, this book certainly helps.
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